The Theses

Salesforce exhibited better-than-expected margin expansion on the back of better-than-expected leverage, said Morgan Stanley's Weiss.

“Management raised the full year op margin expectations to 25-50bps expansion vs. zero-25bps previously. This speaks to the strong underlying unit economics of Salesforce.com,as well as an improved ability by management to integrate large acquisitions, as we saw most recently with the purchase of Demandware in 2016,” the analyst said.

Stifel's Roderick highlighted numerous metrics from the quarter, such as the company’s total revenue of $3.281 billion, which amounts to an increase of 27 percent year-over-year. Subscription revenue grew 28 percent, while unearned revenue grew 24 percent to $5.883 billion.

“The stock appears ready to give back some of the recent gains in the shares, indicating down 2-3 percent in the aftermarket, but we don't expect that sentiment to last for long with Dreamforce coming up in less than a month. At the end of the day, 24-percent year-over-year constant currency unearned revenue growth for a $13-billion revenue run rate business is hard to shake a stick at,” the analyst said.

Salesforce raised its 2019 revenue guidance by $50 million, the equivalent of about 25-percent growth, said William Blair's Suri.

“Management is expecting the challenging foreign exchange environment to continue going into the back half of the year — the company is expecting approximately $75 million to $100 million of foreign currency headwind for the remainder of the year,” the analyst said.

Salesforce refrained from raising its full-year MuleSoft revenue guidance because of the company’s limited history in forecasting that business, Suri said. “We note that MuleSoft revenue contribution in the quarter was almost 40 percent of the full-year guidance."

Raymond James' Peterson said he recognizes the company’s strong demand across multiple segments, including robust growth in sales cloud and service cloud.

“Management commented they are pleased with initial results from the MULE integration, and cited the acquisition as a major topic of conversation with customers," the analyst said. "Marc Benioff described the IT spending environment as the best he’s ever observed, stating that recent tax cuts/deregulation have served as clear investment tailwinds."

BofA's Rangan remains incrementally bullish on CRM based on eight key metrics, he said in a Thursday note. Some of these factors include the company's remaining performance obligation, the aid of lower taxes and one-time gains, raised guidance and a strong revenue despite massive scale.

"Our thesis is that CRM is a long-term market share winner, with inflecting margins, benefiting from the structural shift to Cloud. We see multiple positive levers,” Rangan said.

New Business Model

Salesforce recently moved toward a two-CEO business model with the promotion of Keith Block. In an interview with Bloomberg, Block commented on the company’s new growth strategy as well as investment guidance.

“We see this as a way to execute speed at scale, because we’re growing at scale. You’ve seen our results in Q2, we’re wildly excited about what we’ve done and this is a great operating model for us,” Block said.

“The investors should be thrilled because we are thrilled with these results. Again, we’re the No. 1 leader in the No. 1 category of enterprise software, and the fastest-growing category of enterprise software. No. 1 in sales and marketing and services and platform and we’re growing at a rate that is twice the rate of the market. We’re very pleased with the performance.”

Price Action

Salesforce shares were down 1.85 percent at $151.94 at the time of publication Thursday.